True Fact
True Fact
Archives of “Education” category
rssYou Don’t Need to be Right to Make Money
You have to do the mental work to let go of the need to know what is going to happen next or the need to be right on each trade. In fact the degree to which you think you know, assume you know, or in any way need to know what is going to happen next, is equal to the degree to which you will fail as a trader. Mark Douglas The most successful traders have found a way to inoculate themselves from the stress of trading, and from the outcome of their most recent trades. Here’s how they do it: They have an unshakable belief in the fact that 1) While the outcome of any given trade is uncertain they believe in their edge over a series of trades. In other words they know the expectancy of their method and have confidence that over a series of random outcomes, the odds are in their favor. 2) Anything can happen! In other words they have learned to think of every trade like tossing a coin – they don’t need to know what will happen. They don’t expect to either win or lose. This firm belief in the uncertainty of any given trade, while knowing that over a series of trades you will be profitable, is very liberating. When you learn the mental discipline of letting go of the result of any individual trade you keep your mind in a state where it can easily perceive the opportunities that the market is offering. It is not distracted by focusing on your expectations of what you think should happen – it can perceive what is most likely to happen. The Body/Mind Connection
The 10 Most Read Books In The World
Given all the hype surrounding E.L. James’s “Fifty Shades Of Grey,” you might think that’s the most popular book in the world. But you’d be wrong.
The most read book in the world is the Bible.
Writer James Chapman created a list of the most read books in the world based on the number of copies each book sold over the last 50 years.
He found that the Bible far outsold any other book, with a whopping 3.9 billion copies sold over the last 50 years. “Quotations from the Works of Mao Tse-tung” came in second with 820 million copies sold, and “Harry Potter” came in third with 400 million copies sold.
Designer Jared Fanning created an infographic (below) on the most read books in the world, based on Chapman’s research.
Obama's Jobs 'Recovery' Explained (In 1 Cartoon)
A job’s a job, right?
8 Key cognitive biases to be aware of…
- Loss Aversion… A preference for avoiding losses over acquiring gains
- Sunk Cost Effect… Treating money already spent as more valuable than money that may be spent in the future
- Disposition Effect… A tendency to lock in gains and ride losses
- Outcome Bias… A tendency to judge a decision by its outcome rather than the quality of the decision at the time it was made
- Recency Bias… A tendency to weigh recent data or experience more than earlier data or experience
- Anchoring… A tendency to rely too heavily or anchor on readily available information
- Bandwagon effect… A tendency to believe things because other people believe them
- Belief in Law of Small numbers… The tendency to draw unjustified conclusions from too little information
Day Trading Methodology
I have been reading the latest book from Van Tharp, Super Trader and I want to highlight this passage about daytrading methodologies:
“For example, if you are a daytrader, open up a position and either take a small loss or get out at the end of the day. When you do that, you are not tied to the market all day, and you may find that you take small losses and get huge profits. Simplify your entry technique and concentrate on exits”
Now, lets cross this with Jesse Livermore remarks on the speculative line of least resistance:
“It sounds very easy to say that all you have to do is to watch the tape, establish your resistance points and be ready to trade along the line of least resistance as soon as you have determined it.”
So, we have a powerful daytrading methodology in these two market generalizations. But JL added, “But in actual practice a man has to guard against many things, and most of all against himself – that is, against human nature.”
Rings a bell? Maybe we should all print this post and have it by the trading desk.
'Small losses and sinking ships'
Trading wisdom and strategies
Trading System – According to Howard Abell: The trading system gives the trader the ability to control his or her emotional states rather than allowing them to control him. A system is a disciplined method for organizing dynamic, ever-changing market phenomena.
Risk Control – According to Paul Tudor Jones: If I have positions going against me, I get right out; if they are going for me, I keep them… Risk control is the most important thing in trading. If you have a losing position that is making you uncomfortable, the solution is very simple: Get out, because you can always get back in.
Psychological Makeup – According to Leo Melamed: You learn to distinguish the good traders from the bad, the successful techniques from the unsuccessful, and the good habits from the faulty. You also learn to distinguish the lover from the fighter, the winners from the losers, the serious from the frivolous, the cerebral from the superficial, and the friend from the foe. But above all, you learn that the psychological makeup of the trader is the single most critical element of success.
The Easy Middle – According to Randy McKay: The beginning of a price move is usually hard to trade because you are not sure whether you are right about the direction of the trend. The end is hard because people start taking profits and the market gets very choppy. The middle of the move is what I call the easy part.
Cut Back Trading Size When Losing – According to Bill Lipschutz: When you are in a losing streak, your ability to properly assimilate and analyze information starts to become distorted because of the impairment of the confidence factor, which is a by-product of a losing streak. You have to work very hard to restore that confidence, and cutting back trading helps achieve that goal.
Have A Predetermined Stop – According to Bruce Kovner: Whenever I enter a position, I have a predetermined stop. That is the only way I can sleep. I know where I am getting out before I get in. The position size on a trade is determined by the stop, and the stop is determined on a technical basis.
Accept the Risk – According to Mark Douglas: To whatever degree you haven’t accepted the risk, is the same degree to which you will avoid the risk. Trying to avoid something that is unavoidable will have disastrous effects on your ability to trade successfully.
Making Mistakes Is Part of Business – According to Bruce Kovner: Michael Marcus [another top trader] taught me one other thing that is absolutely critical: You have to be willing to make mistakes regularly; there is nothing wrong with it. Michael taught me about making your best judgement, being wrong, making your next best judgement, being wrong, making your third best judgement, and then doubling your money.
Think Differently
Many still see making money all wrong. They make wildly inaccurate assumptions when asked these questions regarding what constitutes a winning trader:
– Do they possess a unique talent?
– A special inborn gene or divine gift?
– The innate talent of a child prodigy?
– Inside knowledge?
– Ability to predict markets?
– Degrees in finance or a MBA?
– Huge starting capital?
One answer: No.
The Brain is Wider than the Sky
